Permissible piggy-backing

Legitimate authorized-user accounts back in credit-scoring formula

By

LewSichelman

WASHINGTON (MarketWatch) -- The company that creates the algorithms which are used to generate credit scores has found a way to restore authorized-user credit accounts to the calculations while still mitigating the abusive practice known as "piggy-backing."

Piggy-backing is a shady credit-repair tactic in which would-be borrowers who otherwise don't measure up to a lender's credit requirements are able to present the lender with a false reading by purchasing or borrowing another borrowers' credit-card account.

Fair Isaac & Co., the firm for which the popular FICO credit scores are named, cracked down last year on the practice by eliminating authorized-user accounts altogether in the scoring calculation. But the company now says it has found a way to include those accounts when they are legitimate and still exclude the piggy-backers.

"The hallmarks of FICO scores have been quality and innovation, and this technology advance is a great example," said Lisa Nelson, vice president of Global Scoring for Fair Isaac.

"This breakthrough resolves an industry problem that we know has perplexed lenders and concerned regulators. We have developed technology that will reduce any impact on the FICO 08 score from intentional tampering, while allowing the scores of spouses and other genuine authorized users to benefit from their shared credit experience."

The company is working closely with credit reporting agencies to bring the new formulas to market as quickly as possible, but it will be several weeks at the earliest before it does so. Until then, because of the misuse, authorized user accounts still won't count.

At issue is the abuse of authorized-user credit card accounts by so-called credit-repair services. These companies pay people with good credit-card histories to allow mortgage applicants with questionable credit records to be listed on their accounts. Once added, the user shares the same record as the unrelated individual.

Latching on to someone else's credit by becoming an authorized user misrepresents the would-be borrower's own credit history, making it look far better than it actually is. In some cases, a person's credit score can jump by hundreds of points and fool lenders into approving a loan when they otherwise wouldn't.

To stop the unethical, though not illegal, practice, the Minneapolis-based company adjusted its formulas to remove authorized-user accounts from consideration.

"We will do whatever it takes to protect the reliability and accuracy of FICO credit scores for lenders, and to ensure lenders can continue to use FICO scores with confidence when making their most important customer decisions," CEO Mark Greene said in June.

The move stopped unsavory credit-repair companies from "renting" the accounts of more-creditworthy people to borrowers who needed help to get the best rates, or to secure any type of funding whatsoever. But it also penalized the spouses and children of people with quality credit records who actually were authorized to use their partners' or parents' credit cards.

The company estimates that more than 50 million consumers are legitimate authorized users on another person's credit card.

Since their inception -- Fair Isaac uses different formulas for each credit repository -- FICO scores automatically included authorized-user accounts in the scores' assessment of risk. Under the Equal Credit Opportunity Act, when lenders assess a spouse's credit risk they are required to consider the credit history of accounts which both spouses are permitted to use. The same holds true for the card holders' children.

When used legitimately, authorized-user account information has allowed lenders to use FICO scores when making credit decisions for borrowers who are just starting out. But under the edict put in place early last summer, all authorized user accounts were ignored, even truthful ones.

Now, Fair Isaac says it will restore authorized-user credit accounts to the its latest FICO 08 credit score calculations while still materially reducing any potential impact to the score from tampering.

Feedback

Thought you might like to spread the word about this site -- http://www.gethuman.com -- that provides cheat sheets on how to bypass menu items and get to a real live human being-type person right away. Lava Boggavarupa, New York. See previous Realty Q&A.

Response

Thanks, Lava. This appears to be one useful site. I'll have to try it out, and I suppose many frustrated readers will do the same.

Nationally syndicated columnist Lew Sichelman has been covering the housing market for 35 years. Because of the volume of mail he receives, he cannot answer individual questions, nor can all questions be answered in this space. E-mail lsichelman@aol.com

Intraday Data provided by SIX Financial Information and subject to terms of use. Historical and current end-of-day data provided by SIX Financial Information. All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only. Intraday data delayed at least 15 minutes or per exchange requirements.